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Gary Shilling

Japan’s Debt Sustains a Deflationary Depression

Markets have reacted dramatically to the Bank of Japan’s recent efforts to stimulate the economy with loans to high-growth sectors; an expansion of its asset-purchase program; and a new 1 percent inflation target to combat chronic deflation.

Japanese stocks, especially of major exporters, soared and the yen tanked, starting in early February. Yet the spurring effects of monetary easing on Japanese stocks and the depressing influence on the yen didn’t last long. Since mid-March, the currency has resumed its role as a haven from euro-area turmoil. The “risk off” trade is back in favor. Still, I continue to believe that fundamental changes are occurring in Japan that will weaken the yen considerably in future years.